SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
June 30, 1998
For the quarterly period ended. . . . . . . .. . . . . . . . . .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from. . . . . . . .to. . . . . . . . .
1-3103-2
Commission file number. . . . . . . . . . . .. . . . . . . . . .
New York State Electric & Gas Corporation
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Exact name of registrant as specified in its charter)
New York 15-0398550
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 3287, Ithaca, New York 14852-3287
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Address of principal executive offices) (Zip Code)
607 347-4131
Registrant's telephone number, including area code . . . . . . .
N/A
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares of common stock (par value $6.66 2/3
per share) outstanding as of July 31, 1998 was 64,508,477. All
shares were held by Energy East Corporation.
TABLE OF CONTENTS
PART I
Page
Item 1. Financial Statements . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(a) Liquidity and Capital Resources . . . . . 7
(b) Results of Operations . . . . . . . . . . 10
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. . . . . . . . . . . . . . . . . 15
(b) Reports on Form 8-K . . . . . . . . . . . 15
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 16
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
New York State Electric & Gas Corporation
Consolidated Statements of Income - (Unaudited)
Three Months Six Months
Periods Ended June 30 1998 1997 1998 1997
(Thousands, except per share amounts)
Operating Revenues
Electric . . . . . . . . . . . . . . $404,768 $411,453 $910,356 $862,723
Natural gas. . . . . . . . . . . . . 54,535 58,917 176,179 195,784
------- ------- --------- ---------
Total Operating Revenues. . . . . 459,303 470,370 1,086,535 1,058,507
------- ------- --------- ---------
Operating Expenses
Fuel used in electric generation . . 20,991 52,706 80,083 112,689
Electricity purchased. . . . . . . . 142,629 98,247 288,840 191,459
Natural gas purchased. . . . . . . . 31,251 28,462 88,388 88,869
Other operating expenses . . . . . . 67,391 80,967 140,559 160,528
Maintenance. . . . . . . . . . . . . 20,702 30,550 52,650 54,467
Depreciation and amortization. . . . 37,044 48,027 84,638 96,316
Other taxes. . . . . . . . . . . . . 45,960 48,668 100,900 103,909
------- ------- --------- ---------
Total Operating Expenses. . . . . 365,968 387,627 836,058 808,237
------- ------- --------- ---------
Operating Income. . . . . . . . . . . 93,335 82,743 250,477 250,270
Interest Charges, Net . . . . . . . . 29,630 29,882 60,266 60,508
Other Income and Deductions . . . . . 706 4,578 3,428 9,346
------- ------- --------- ---------
Income Before Federal Income Taxes. . 62,999 48,283 186,783 180,416
Federal Income Taxes. . . . . . . . . 26,833 22,008 72,177 72,164
------- ------- --------- ---------
Net Income. . . . . . . . . . . . . . 36,166 26,275 114,606 108,252
Preferred Stock Dividends . . . . . . 2,260 2,352 4,529 4,667
------- ------- --------- ---------
Earnings Available for Common Stock . $33,906 $23,923 $110,077 $103,585
======= ======= ========= =========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Balance Sheets - (Unaudited)
June 30, Dec. 31,
1998 1997
(Thousands)
Assets
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . $7,439 $8,168
Special deposits . . . . . . . . . . . . . . . . . . . 3,008 3,170
Accounts receivable, net . . . . . . . . . . . . . . . 92,594 189,008
Loan receivable - associated company . . . . . . . . . 129,865 -
Fuel, at average cost. . . . . . . . . . . . . . . . . 17,061 43,706
Materials and supplies, at average cost. . . . . . . . 10,242 41,561
Prepayments. . . . . . . . . . . . . . . . . . . . . . 72,418 68,452
Accumulated deferred federal income
tax benefits, net. . . . . . . . . . . . . . . . . . - 2,148
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . 332,627 356,213
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . . 3,335,000 5,234,725
Natural gas. . . . . . . . . . . . . . . . . . . . . . 583,211 576,683
Common . . . . . . . . . . . . . . . . . . . . . . . . 142,905 152,034
---------- ----------
4,061,116 5,963,442
Less accumulated depreciation. . . . . . . . . . . . . 1,305,955 2,093,274
---------- ----------
Net Utility Plant in Service. . . . . . . . . . . . 2,755,161 3,870,168
Construction work in progress. . . . . . . . . . . . . 28,937 52,104
---------- ----------
Total Utility Plant . . . . . . . . . . . . . . . . 2,784,098 3,922,272
Other Property and Investments, Net . . . . . . . . . . 98,005 143,449
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes. . . . . . . . . 190,242 243,129
Unamortized debt expense. . . . . . . . . . . . . . . 73,974 76,418
Demand-side management program costs. . . . . . . . . 64,466 64,466
Environmental remediation costs . . . . . . . . . . . 62,500 82,900
Other . . . . . . . . . . . . . . . . . . . . . . . . 132,549 113,637
---------- ----------
Total regulatory assets. . . . . . . . . . . . . . . . 523,731 580,550
Other assets . . . . . . . . . . . . . . . . . . . . . 24,677 26,197
---------- ----------
Total Regulatory and Other Assets . . . . . . . . . 548,408 606,747
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . $3,763,138 $5,028,681
========== ==========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Balance Sheets - (Unaudited)
June 30, Dec. 31,
1998 1997
Liabilities (Thousands)
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . $2,023 $38,240
Current portion of preferred stock . . . . . . . . . . 30,000 -
Commercial paper . . . . . . . . . . . . . . . . . . . 70,000 58,000
Accounts payable and accrued liabilities . . . . . . . 98,020 124,981
Interest accrued . . . . . . . . . . . . . . . . . . . 19,658 20,500
Taxes accrued. . . . . . . . . . . . . . . . . . . . . 38,421 6,146
Accumulated deferred federal income taxes, net . . . . 19,812 -
Other. . . . . . . . . . . . . . . . . . . . . . . . . 53,208 79,631
---------- ----------
Total Current Liabilities. . . . . . . . . . . . . . 331,142 327,498
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 101,499 81,986
Deferred income taxes - unfunded future federal
income taxes. . . . . . . . . . . . . . . . . . . . 74,428 99,126
Other . . . . . . . . . . . . . . . . . . . . . . . . 41,067 79,709
---------- ----------
Total regulatory liabilities . . . . . . . . . . . . . 216,994 260,821
Other liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 449,643 753,722
Other postretirement benefits . . . . . . . . . . . . 130,263 117,760
Environmental remediation costs . . . . . . . . . . . 82,500 82,900
Other . . . . . . . . . . . . . . . . . . . . . . . . 81,007 73,021
---------- ----------
Total other liabilities. . . . . . . . . . . . . . . . 743,413 1,027,403
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,441,163 1,450,224
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . 2,732,712 3,065,946
Commitments - -
Preferred Stock Redeemable Solely at the
Option of the Company. . . . . . . . . . . . . . . . 104,440 134,440
Preferred Stock Subject to Mandatory
Redemption Requirements. . . . . . . . . . . . . . . 25,000 25,000
Common Stock Equity
Common stock . . . . . . . . . . . . . . . . . . . . 430,057 462,250
Capital in excess of par value. . . . . . . . . . . . 429,740 811,648
Retained earnings . . . . . . . . . . . . . . . . . . 41,189 568,844
Treasury stock, at cost . . . . . . . . . . . . . . . - (39,447)
---------- ----------
Total Common Stock Equity . . . . . . . . . . . . . 900,986 1,803,295
---------- ----------
Total Liabilities and Stockholder's Equity . . . . $3,763,138 $5,028,681
========== ==========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Statements of Cash Flows - (Unaudited)
Six Months
Periods Ended June 30 1998 1997
(Thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . $114,606 $108,252
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization. . . . . . . . . . 84,638 96,316
Federal income taxes and investment tax credits
deferred, net. . . . . . . . . . . . . . . . . (5,980) (23,381)
Changes in current operating assets and liabilities
Accounts receivable . . . . . . . . . . . . . . 96,414 53,485
Loan receivable. . . . . . . . . . . . . . . . . (129,865) -
Inventory. . . . . . . . . . . . . . . . . . . . 57,964 957
Accounts payable and accrued liabilities . . . . (26,961) (28,658)
Taxes accrued. . . . . . . . . . . . . . . . . . 32,275 42,825
Other, net . . . . . . . . . . . . . . . . . . . . 82,342 27,146
------- -------
Net Cash Provided by Operating Activities . . . 305,433 276,942
------- -------
Investing Activities
Utility plant capital expenditures . . . . . . . . (74,403) (55,842)
Proceeds from governmental and other sources . . . 316 911
Expenditures for other property and investments. . 25,670 (804)
------- -------
Net Cash Used in Investing Activities . . . . . (48,417) (55,735)
------- -------
Financing Activities
Repurchase of common stock . . . . . . . . . . . . (114,023) (7,254)
Purchase of treasury stock . . . . . . . . . . . . - (39,565)
Repayments of first mortgage bonds . . . . . . . . (30,000) (48,000)
Changes in funds set aside for first
mortgage bond repayments . . . . . . . . . . . . - 25,000
Long-term notes, net . . . . . . . . . . . . . . . (736) (1,667)
Commercial paper, net. . . . . . . . . . . . . . . 12,000 (91,500)
Dividends on common and preferred stock. . . . . . (124,986) (53,052)
------- -------
Net Cash Used in Financing Activities . . . . . (257,745) (216,038)
------- -------
Net (Decrease) Increase in Cash and
Cash Equivalents. . . . . . . . . . . . . . . . . (729) 5,169
Cash and Cash Equivalents, Beginning of Period. . . 8,168 8,253
------- -------
Cash and Cash Equivalents, End of Period. . . . . . $7,439 $13,422
======= =======
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . . $52,514 $55,230
Income taxes. . . . . . . . . . . . . . . . . . . $37,346 $53,661
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Statements of Retained Earnings - (Unaudited)
Six Months
Periods ended June 30 1998 1997
(Thousands)
Balance, beginning of period. . . . . . . . . . $568,844 $489,129
Add net income. . . . . . . . . . . . . . . . . 114,606 108,252
-------- --------
683,450 597,381
Deduct dividends on capital stock
Preferred. . . . . . . . . . . . . . . . . . . 4,529 4,667
Common . . . . . . . . . . . . . . . . . . . . 120,391 48,244
-------- --------
124,920 52,911
Deduct
Transfer of NGE Generation, Inc. and NGE
Enterprises, Inc. to parent . . . . . . . . . . 517,341 -
-------- --------
Balance, end of period. . . . . . . . . . . . . $41,189 $544,470
======== ========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Note 1. Holding Company Formation
On May 1, 1998, New York State Electric & Gas Corporation
(NYSEG or company) was reorganized into a holding company
structure pursuant to an Agreement and Plan of Share Exchange
between NYSEG and Energy East Corporation (Energy East). NYSEG's
outstanding common stock was exchanged on a share-for-share basis
for Energy East's common stock and Energy East became the parent
of NYSEG. Energy East's common stock is listed on the New York
Stock Exchange under the symbol NEG. NYSEG's common stock was
delisted from the New York Stock Exchange. The preferred stock
and debt of NYSEG were not exchanged and remain securities of
NYSEG. The unaudited consolidated financial statements reflect
the transfer at book value of NYSEG's ownership interests in NGE
Generation, Inc. (GenSub) and NGE Enterprises, Inc. (NGE
Enterprises) to Energy East. This transfer reduced NYSEG's
assets, liabilities and common stock equity by $1,059 million,
$279 million and $780 million, respectively. (See Item 2(a) -
Liquidity and Capital Resources - Competitive Conditions -
Electric Industry, Generation Business.)
Note 2. Principles of Consolidation
NYSEG's 1997 consolidated financial statements include
NYSEG, assets transferred to GenSub in February 1998, NGE
Enterprises and Somerset Railroad Corporation. NYSEG's 1998
consolidated financial statements do not include GenSub and NGE
Enterprises beginning May 1, 1998, the effective date of the
reorganization into a holding company structure.
Note 3. Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements
reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the company's consolidated
results for the interim periods. All such adjustments, other
than those related to the reorganization into a holding company
structure noted above, are of a normal recurring nature. The
unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
contained in the company's annual report for the year ended
December 31, 1997. Due to the seasonal nature of the company's
operations, financial results for interim periods are not neces-
sarily indicative of trends for a twelve-month period.
Item 2. Management's discussion and analysis of financial
condition and results of operations
(a) Liquidity and Capital Resources
Competitive Conditions (See Form 10-K for the fiscal year ended
December 31, 1997, Item 7 - Liquidity and Capital Resources -
Competitive Conditions - Electric Industry, Natural Gas Industry
and Accounting Issues; and Form 10-Q for the quarter ended March
31, 1998, Item 2(a) - Liquidity and Capital Resources -
Competitive Conditions - Electric Industry and Natural Gas
Industry.)
Holding Company Structure
On May 1, 1998, Energy East became the parent of NYSEG. The
unaudited consolidated financial statements reflect the transfer
at book value of NYSEG's ownership interests in GenSub and NGE
Enterprises to Energy East. NYSEG is a regulated utility
transmitting and delivering electricity, transporting and
delivering natural gas, and generating electricity from its
nuclear and hydroelectric stations. GenSub produces electricity
from seven coal-fired stations. NGE Enterprises, a holding
company, has subsidiaries that provide energy services.
Electric Industry
Generation Business: All of GenSub's generating units are in
service for the summer peak load period, including the two units,
with a total generating capacity of 92 megawatts, that were
placed on long-term cold standby in 1995 and 1996.
The company put GenSub's seven coal-fired generating
stations and associated assets and liabilities up for auction
earlier this year. The company and GenSub accepted offers
totaling $1.85 billion from The AES Corporation and Edison
Mission Energy in August 1998, for the generation assets. The
contract with The AES Corporation is for the purchase of the
generation assets in New York State, and the contract with Edison
Mission Energy is for the purchase of the Homer City Generating
Station in Pennsylvania. The total sales price provides full
recovery of the net book value of the generation assets. There
are a number of items such as depreciation, book value of
inventories and taxes that between now and the date of the
closing will affect the financial statements as the company and
GenSub continue to precisely define the specific costs of the
items included in the transactions. Pursuant to the company's
restructuring plan approved by the Public Service Commission of
the State of New York (PSC) in January 1998 all proceeds, net of
taxes and transaction costs, in excess of the net book value of
the generation assets, less funded deferred taxes, will be used
to write down the company's 18% investment in Nine Mile Point
nuclear generating unit No. 2.
This transaction, including the writeoff and writedown of
coal-fired and nuclear generation assets, and corresponding
common stock equity, will not adversely affect the company's
financial condition. For regulatory purposes, any reduction in
the common stock equity balance resulting from such writeoff and
writedown of the generation assets, or the repurchase of common
stock, is eliminated before the company's electric return on
equity is calculated in accordance with the 12% earnings cap
approved by the PSC in January 1998 in the company's
restructuring plan.
The company and GenSub will file with the appropriate
regulatory bodies seeking approval of the sales, and the sales
are expected to close early next year. The company's parent,
Energy East, plans to use the proceeds from the sales to
repurchase common stock and expand its energy distribution system
throughout the Northeast.
FERC Orders 888 and 889: The Federal Energy Regulatory
Commission (FERC) issued Orders 888 and 889 in April 1996,
adopting rules to facilitate the development of competitive
wholesale electricity markets by opening up transmission services
and to address the resulting stranded costs. In subsequent orders
the FERC generally affirmed Orders 888 and 889. Various parties,
including the company, have filed petitions for review of these
orders with the United States Courts of Appeals in various
circuits.
The FERC accepted, in February 1997, a compliance filing of
the New York Power Pool (NYPP), of which the company is a member,
in response to Order 888. NYPP members submitted additional
filings to the FERC in 1997 proposing the restructuring of the
NYPP by establishing an Independent System Operator (NYISO), a
Power Exchange and a New York State Reliability Council (NYSRC).
The FERC approved the formation of the NYISO and NYSRC in June
1998 and indicated that it would later rule on the rates, terms
and conditions of service to be implemented by the NYISO under
the NYISO tariff. These additional FERC rulings are needed before
the NYISO, NYSRC and the restructured market can commence
operation. The company is unable to predict the outcome that the
remaining FERC proceedings will have on the NYISO and their
ultimate effect on the company's financial position or results of
operations.
Natural Gas Industry
Joint Venture with Central Maine Power Company: The Maine Public
Utilities Commission approved the joint venture's application to
provide natural gas service to the Augusta, Bangor, Bath-
Brunswick, Bethel, Waterville and Windham communities. The joint
venture's plans have been developed to coincide with the
construction schedules of two pipelines from Canada, with initial
service to customers anticipated by the end of 1998.
NYSEG's Natural Gas Rate Settlement Agreement: The company filed
a natural gas rate settlement agreement with the Public Service
Commission of the State of New York (PSC) on May 26, 1998.
Subject to final approval by the PSC, this settlement agreement
will reduce prices for most customers. The settlement agreement
is expected to become effective September 1, 1998 and continue
through August 31, 2002.
The settlement agreement provides for a reduction of $26.9
million, or 2.2%, in the company's natural gas revenues over the
term of the agreement. An earnings sharing mechanism in the
settlement agreement provides that any excess of the average
earned equity returns, as determined for the first 24 months of
the agreement and then for the remaining term of the agreement,
will be shared equally between customers and shareholders. If the
company's gas-related equity ratio is 48% or higher, the average
earned equity return sharing threshold will be 13%. If the gas-
related equity ratio is below 48%, the average earned equity
return sharing threshold will be 12.5%.
Investing Activities
Capital expenditures for the first six months of 1998 were
$74 million. The company estimates its capital expenditures for
1998 will be about $140 million, primarily for extension of
service and necessary improvements to existing facilities. These
expenditures are expected to be financed entirely with internally
generated funds.
Financing Activities
In July 1998 the company redeemed, at a premium, $30 million
of 6.48% preferred stock.
Forward-Looking Statements
This Form 10-Q quarterly report includes certain forward-
looking statements that are based upon management's current
expectations and information currently available. Whenever used
in this report, the words "estimate," "expect," or similar
expressions are intended to identify forward-looking statements.
In addition to the assumptions and other factors referred to in
connection with such statements, factors that could cause actual
results to differ materially from those contemplated in any
forward-looking statements include, among others, regulatory
developments; the rapidly changing and increasingly competitive
electric and natural gas utility markets; the ability to obtain
adequate and timely rate relief; cost recovery, including the
potential effect of stranded costs; legal or administrative
proceedings; business conditions; technological developments;
changes in the cost or availability of capital; labor
developments; nuclear or environmental incidents; factors
affecting the utility industry in general, such as deregulation
and unbundling of energy services; weather conditions; changes in
fuel supply or cost; and other considerations that may be
disclosed from time to time in the company's publicly
disseminated documents and filings. The company undertakes no
obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or
otherwise.
(b) Results of Operations
Three Months Ended June 30,
1998 1997 Change
(Thousands)
Total Operating Revenues $459,303 $470,370 (2%)
Operating Income $93,335 $82,743 13%
Earnings Available for
Common Stock $33,906 $23,923 42%
Excluding the effect of the transfer of GenSub and NGE
Enterprises to NYSEG's parent as part of the reorganization into
a holding company structure on May 1, 1998, earnings for the
three months increased primarily due to cost control efforts and
higher electric deliveries partially offset by lower natural gas
deliveries due to warmer weather.
Six Months Ended June 30,
1998 1997 Change
(Thousands)
Total Operating Revenues $1,086,535 $1,058,507 3%
Operating Income $250,477 $250,270 -
Earnings Available for
Common Stock $110,077 $103,585 6%
Excluding the effect of the transfer of GenSub and NGE
Enterprises to NYSEG's parent as part the reorganization into a
holding company structure on May 1, 1998, earnings for the six
months increased due to cost control efforts and higher electric
wholesale deliveries. Those increases were partially offset by
lower electric and natural gas retail deliveries primarily
because of unusually warm weather during the heating season in
the first quarter of this year.
Operating Results by Business Segment
Electric Three Months Ended June 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Megawatt-hours 3,130 3,071 2%
Operating Revenues $404,768 $411,453 (2%)
Operating Expenses $309,623 $334,939 (8%)
Operating Income $95,145 $76,514 24%
Excluding the effect of the transfer of GenSub and NGE
Enterprises to NYSEG's parent as part of the reorganization into
a holding company structure on May 1, 1998, operating revenues
increased due to higher electric deliveries. Operating expenses
increased for the three months primarily due to an increase in
electricity purchased for wholesale deliveries, partially offset
by a decrease in electricity purchased for retail deliveries and
a decrease in various operating and maintenance costs.
Six Months Ended June 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Megawatt-hours 6,520 6,563 (1%)
Operating Revenues $910,356 $862,723 6%
Operating Expenses $693,944 $666,908 4%
Operating Income $216,412 $195,815 11%
Excluding the effect of the transfer of GenSub and NGE
Enterprises to NYSEG's parent as part of the reorganization into
a holding company structure on May 1, 1998, operating revenues
for the six months increased primarily due to higher wholesale
deliveries, partially offset by a decrease in retail deliveries.
Operating expenses for the six months increased primarily due to
an increase in electricity purchased for wholesale deliveries
partially offset by a decrease in electricity purchased for
retail deliveries and a decrease in various operating and
maintenance costs.
Natural Gas Three Months Ended June 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Dekatherms 9,305 10,889 (15%)
Operating Revenues $54,535 $58,917 (7%)
Operating Expenses $56,345 $52,688 7%
Operating Income ($1,810) $6,229 (129%)
Natural gas retail deliveries decreased because of warmer
weather this quarter.
The decrease in natural gas operating revenues was primarily
due to lower retail deliveries, partially offset by increases in
wholesale sales and other revenues and a more favorable sales
mix.
Natural gas operating expenses increased primarily due to an
increase in the amount of natural gas purchased.
Six Months Ended June 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Dekatherms 30,584 34,308 (11%)
Operating Revenues $176,179 $195,784 (10%)
Operating Expenses $142,114 $141,329 1%
Operating Income $34,065 $54,455 (37%)
Natural gas operating revenues decreased for the six months
due to lower retail deliveries, primarily due to warmer weather.
That decrease was partially offset by increases in wholesale
sales and other revenues and a more favorable sales mix.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
(a) By letter dated April 20, 1992, the Environmental Protection
Agency (EPA) notified the company that it had been identified as
a potentially responsible party (PRP) at the Bern Metal Removal
Site (Bern Metal Site) in Buffalo, New York. Six other PRPs have
been identified by the EPA. The EPA has taken response actions at
the Bern Metal Site, including investigation, excavation, and
removal of drums and contaminated soil, and implementation of
measures to prevent surface water run-off. The EPA demanded that
the company reimburse the EPA Hazardous Substances Superfund $2
million in response costs incurred to date by the EPA, with
interest accruing from the date of the demand. In September 1995
the company and the EPA reached an agreement on a consent order
under which the company would pay the sum of $10,000 in return
for a covenant by the EPA not to sue the company for the EPA's
response costs, and to protect the company from claims of
contribution by other PRPs for such costs incurred to date. The
consent order was approved and in July 1998 the company paid
$10,000 to the EPA. (See Form 10-K for the fiscal year ended
December 31, 1997, Item 3. Legal Proceedings.)
(b) On May 22, 1998, the company, along with fifteen other
parties, received a special notice pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980
(CERCLA) from the EPA, asking whether the recipients wished to
voluntarily finance or perform the remedial design and remedial
action at the Rosen Brothers Site in the City of Cortland, New
York. The estimated total present-worth cost of the selected
remedy is $3,140,000. The EPA also requested reimbursement of
past costs at the site of approximately $692,000, plus interest.
Pursuant to the special notice procedures of CERCLA, the company,
along with certain other parties that received the special
notice, submitted a "good faith offer" on July 21, 1998, to
voluntarily contribute to the cost of the remedial design and
remedial action. The company has entered into discussions with
the other PRPs at the site in an attempt to reach an agreement
concerning allocation of costs. Such discussions are proceeding
under the supervision of an alternative dispute resolution
specialist retained by the EPA. (See Form 10-K for the fiscal
year ended December 31, 1997, Item 3. Legal Proceedings.)
(c) The company, on June 15, 1998, commenced an action in the New
York State Supreme Court, Tompkins County against Niagara Mohawk
Power Corporation (NiMo) seeking an order enjoining NiMo from
transferring operating responsibility for the Nine Mile Point
nuclear generating unit No. 2 (NMP2) to the New York Nuclear
Operating Company (NYNOC) without the company's consent. The
company has an undivided 18% interest in NMP2, which is operated
by NiMo. Ownership of NMP2 is shared with NiMo 41%, Long Island
Power Authority 18%, Rochester Gas and Electric Corporation 14%
and Central Hudson Gas & Electric Corporation 9%. The lawsuit
also seeks to recover damages for funds used by NiMo to promote
the establishment of NYNOC and the transfer of operating
responsibility for NMP2 to NYNOC. NYNOC was established for the
purpose of assuming operation of all of the nuclear generating
units in New York State. The company believes that the
establishment of NYNOC will not result in either improved
operational performance or reduced costs sufficient to offset the
development and implementation expenses likely to be incurred by
its creation. On July 7, 1998, the company served an amended
complaint on NiMo alleging that NiMo had breached its fiduciary
obligation to the company by engaging in negotiations with a
third party for the sale of NMP2, including the company's share,
without advising the company of those negotiations or allowing it
to participate in the negotiations and by NiMo conducting the
negotiations in a manner designed to limit the interest of the
third party in purchasing NMP2.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NEW YORK STATE ELECTRIC & GAS CORPORATION
(Registrant)
By Sherwood J. Rafferty
Sherwood J. Rafferty
Senior Vice President and
Chief Financial Officer
Date: August 13, 1998
EXHIBIT INDEX
(a) The following exhibits are delivered with this report:
Exhibit No.
3-15 - By-Laws of the Company as amended June 5, 1998.
(A)10-46 - Retirement Plan for Directors Amendment No. 4.
(A)10-47 - Amended and Restated Directors Share Plan.
(A)10-48 - Amended and Restated Supplemental Executive Retirement
Plan.
(A)10-49 - Amended and Restated Annual Executive Incentive Plan.
(A)10-50 - Amended and Restated Long-Term Executive Incentive
Share Plan.
(A)10-51 - Form of Amendment to the Company's Severance
Agreements.
(A)10-52 - Amended and Restated Employment Agreement for W. W.
von Schack.
(A)10-53 - Amended and Restated Employment Agreement for M. I.
German.
(A)10-54 - Amended and Restated Employment Agreement for K. M.
Jasinski.
27 - Financial Data Schedule.
(A) Management contract or compensatory plan or arrangement.